The Housing Bubble

The California realtors have Septembers numbers out. “Home sales decreased 31.7 percent in September in California compared with the same period a year ago, while the median price of an existing home increased 1.8 percent, the California Association of Realtors reported today.”

“The median price of an existing, single-family detached home in California during September 2006 was $553,050, a 1.8 percent increase over the revised $543,510 median for September 2005, C.A.R. reported. The September 2006 median price decreased 4 percent compared with August’s $576,360 median price.”

“The statewide sales figure..is adjusted to account for seasonal factors that typically influence home sales.”

“‘Overall, year-to-date sales were down 24 percent, in line with our 2006 projection. Regional trends in sales and prices were consistent with recent months,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘Areas that experienced a lot of homebuilding in recent years or second home activity have experienced larger declines in sales and weaker prices than the state as a whole. These include Northern California, the Northern Wine Country, the Central Valley, San Diego County, and the Lower Desert in Southern California.’”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 59.6 percent, or 227 out of 381 cities and communities, showed an increase in their respective median home prices from a year ago.”

The LA Times. “California’s housing market continued to cool in September as..the pace of sales in September plunged from last year. ‘High and rising inventory [of unsold homes] is killing prices,’ said economist Ian Shepherdson.”

The Orange County Register. “Freedom Realty Exchange of Newport Beach is just one of a growing number of firms offering homes for auction, as sellers seek to distinguish themselves from the pack of at least 15,000 other Orange County homeowners trying to unload their properties in a slow market.”

“‘The residential market’s in the tank right now,’ said Bill Lange, CEO of the Newport Beach firm that runs the web site. ‘The more progressive agents are going to use this as a tool to service their clients.’”

“Lately a growing number of ordinary homeowners are turning to auction companies to speed up their home sale at a time when Orange County houses average two months or more before they find a buyer. A Manhattan Beach real estate auction firm, held its second auction of an Orange County home on Oct. 14 and plans to auction off three more Orange County homes on Nov. 4.”

“The Norris Group, founded by Riverside real estate investor Bruce Norris, is launching a home auction business Nov. 19 at a Cal Poly Pomona auditorium, hawking 19 vacant, investor-owned homes.”

“‘These are investors who are in strong positions, and they think things are getting worse, and they’d rather come to an end sooner rather than later,’ explained Norris’ son, Greg. ‘People are getting to the point where they cannot afford to hold on to properties anymore.’”

“Auctioneer Todd Wohl, vice president of Premier Estates, concurred, saying the real estate market has changed this past year. ‘People are starting to say, ‘I want my home sold now. I don’t want it on the market another two months, three months, five months – or a year,’ he said.”

“Until the current slump, the general residential market wasn’t ready for home auctions, Lange said.”

The Desert Sun. “The valley’s recent real estate boom, and the current correction in sales counts and appreciation rates, have done more than alter buyers’ and sellers’ expectations. They’ve also got the experts wondering what ‘normal’ should be these days. ‘It’s been so long since we’ve seen a normal market, we’ve forgotten what it looks like,’ said real estate analyst Pat Veling.”

“A downturn in home sales, soaring home inventory and a slowing of home price appreciation, which may drop to between 2 percent and 4 percent by 2007, should be expected after the frenetic and unsustainable pace of the past few years during which time price appreciation reached 25 percent, panelists told a group of about 400 attendees.”

“That anticipated dip in annual home price appreciation is doubly disheartening considering it had been as high as 37 percent in 2004.”

“About 11,700 homes sold in 2005 across the valley, but only about 7,200 have sold so far this year. More than 8,200 homes were listed for sale in the valley this week, compared with 4,700 during the same period last year.”

“Only 15 percent of valley workers are able to afford a median-priced home. ‘The prices are out of whack still, and until they are adjusted it’s going to be pretty slow,’ said Bill Powers, president of Pacific Western Bank.”

The LA Daily News. “In yet another sign of a slowing real-estate market, mortgage giant Countrywide Financial Corp. said Tuesday that it will cut 2,500 jobs nationwide, saying it needs to save $500 million a year.”

“The Calabasas-based company, said the cuts will come from operational and corporate administrative staffers but remained vague about what parts of the country would take the biggest hit. ‘In response to changing market conditions, management has initiated an expense and headcount reduction program,’ CEO Angelo Mozilo said.”

“‘I don’t think there has been any decision where the jobs will be cut at this point in time,’ company spokesman Rick Simon said. ‘The analysis is still going on but … it won’t be all in California.’”

“However, an analyst who participated in the earnings conference call but asked not to be identified said he thinks most of the cuts will come in California. In the past, the company has said future expansions would be out of state because of the high cost of doing business here.”

“Last month, sales of previously owned single-family homes in the San Fernando Valley plunged 31.1 percent from a year ago to 814 transactions, or 368 fewer, according to the Southland Regional Association of Realtors. The median price increased 0.8 percent, to $595,000, just $5,000 more than a year ago.”

“Countrywide has about 18,000 employees in California, including Calabasas, Simi Valley, Agoura, Westlake Village, Thousand Oaks, West Hills, Warner Center, Irvine, Pasadena, Rosemead and Lancaster.”

The Orange County Register has this update. “The median price of an existing single-family house in Orange County fell in September from the year before, the second straight month of year-over-year price declines, the California Association of Realtors reported today.”

“The number of Orange County houses sold also fell, by 32.2 percent, the association said. The California association reported that the median price for an existing Orange County house was $706,490 in September, which was 0.3 percent below the median price in September 2005. The median price a year ago was $708,840.”

The Florida realtors have the September numbers out. “A total of 13,485 existing single-family homes sold statewide last month, a decrease of 34 percent from the 20,451 homes sold during the previous September, according to the Florida Association of Realtors. Statewide, the existing-home median price slipped 1 percent to $243,900 last month; a year ago, it was $246,100.”

“Looking to Florida’s existing condominium market, sales of existing condos also decreased in September, with a total of 3,819 condos sold statewide compared to 6,930 in September 2005 for a 45 percent decrease, according to FAR. The statewide median sales price for condos last month was $201,900; a year ago, it was $215,500 for a 6 percent decrease.”

“Among the state’s larger markets, the Miami metropolitan statistical area reported 769 existing homes sold last month compared to 872 homes sold a year ago for a 12 percent decline. A total of 666 existing condos changed hands in Miami in September for a 40 percent decrease over the 1,106 condos sold the previous year.”

“‘Prices are slowly trending down,’ says Pat Dahne, chairman of the Realtor Association of Greater Miami. ‘As real estate professionals, we need to remind people that real estate is a long-term investment.”

The Miami Herald. “With sales sluggish, the inventory of existing single-family homes and condominiums with ‘for sale’ signs grew again in September. More than 62,000 homes were on the market in Miami-Dade and Broward — some 1,800 more than in August and nearly triple the number a year ago.”

“The reasons for the stubborn slowdown include skyrocketing prices staying beyond the reach of too many buyers, investors and speculators having fled the market, rising property insurance, the specter of higher property taxes discouraging new purchases and primary buyers waiting on the sideline for fear prices will drop further.”

The Naples News. “The number of homes sold in the Naples area declined 37 percent last month compared to September 2005. There were 236 home sales last month in the area, compared to 377 a year ago.”

“The median price of those homes also dropped, according to the numbers released today. The median price for an existing, single-family home sold by a Realtor was $446,900 last month, compared to $487,500 in September 2005.”

“There were 173 condo sales in the Naples area last month, down 62 percent from the 456 that sold last year in September.”

The News Press. “The number of sales and median price of an existing home in Lee County dropped in September compared to a year ago, according to statistics released today by the Florida Association of Realtors. There was a 9 percent drop from $288,700 to $261,400 in the median price; the number of homes sold with assistance from a Realtor plummeted 36 percent from 1,075 to 693.”

“In Collier County, the price dropped 8 percent from $487,500 to $446,900 and the number of sales fell 37 percent from 377 to 236. For Charlotte County, the price dropped 10 percent from $229,700 to $207,800 while the number of sales fell 42 percent from 353 to 206.”

The Sun Sentinel. “South Florida’s housing market showed no signs of improvement in September as prices and sales of existing homes continued to decline.”

“Palm Beach County’s median price of $365,500 dropped 9 percent or $34,500 from $400,000 in September 2005, FAR said Wednesday. Broward County’s median of $370,300 fell 2 percent or $9,100 from $379,400 in September.”

“Prices have fallen in Broward County for three months in a row; in Palm Beach County, prices have been down for the past two months. Year-over-year sales dropped by double digits in all three counties.”

“Palm Beach County had 566 sales in September, down 53 percent from the 1,202 sales last September. That slide was the largest in the state. Real estate agents across South Florida say they didn’t expect the slumping market to improve in September as buyers remain mostly hesistant.”

Some housing bubble news from Wall Street. “Dallas-based homebuilder Centex Corp. reported Tuesday that its profit for the latest quarter plunged 60 percent with the slowing of the U.S. housing market. Centex said it was forced to write off more than $130 million in costs in the quarter ended Sept. 30 related to canceled land purchases and revaluations.”

“‘We have been aggressively responding to deteriorating market conditions by reducing our controlled lots and aligning our workforce to the new market realities,’ Centex CEO Tim Eller said.”

“Concerns about a housing price bubble in many markets, higher interest rates and a slowdown in economic growth have put potential homebuyers on the sidelines. New home orders were down in every section of the country for a total of 29 percent, Centex said. Sales orders in the Southwest were off 14 percent from a year earlier.”

“Eller said inventories of existing homes for sale have doubled or tripled in many markets and in some areas are still rising. ‘Buyers are either waiting on the sidelines for conditions to improve or canceling their purchase all together, believing they will be unable to sell their existing home for their expected price,’ the home-builder CEO said.”

“He added that markets that got overheated such as Phoenix and areas of California are seeing sales listings grow significantly more.”

The Times Community from Virginia. “Centex Homes Division president Robert K. Davis notified Mayor George Fitch that the Dallas-based company ‘will not move forward and complete the purchase’ of about 385 acres for a gated subdivision on U.S. 29 at the town’s southwestern edge.”

“Centex wanted to build 298 single-family homes, which would have started at $900,000 apiece, according to the company. Supervisor Chester Stribling (Lee District) didn’t expect the company to scuttle the project. ‘I thought they were committed to it,’ he said. But he added, ‘It was high-end expensive housing and the market’s cold.’”

“Brookfield Homes Corp. reported third-quarter net earnings of $27.6 million, down 27% from the year-ago period. The Fairfax, Va.-based home builder posted revenue of $176.2 million vs. $267.7 million. In addition, Brookfield reduced the range of its 2006 per-share earnings outlook due to the impact the continued market uncertainty may have on its estimated home closings and bulk land sales.”

“‘The long anticipated slowdown in housing markets in the U.S. remains a challenge, particularly in our San Diego and Washington, D.C. markets,’ said CEO Ian Cockwell.”

“Denver-based M.D.C. Holdings Inc., the eighth- largest U.S. home builder by market value, said on Tuesday its third-quarter earnings fell 60 percent as potential buyers canceled orders. Potential customers have backed out of purchases over concerns the houses may drop in value and because they are having trouble selling their existing residences.”

“M.D.C. also incurred a $20 million expense to write down inventory and recorded project write-off costs of $9.5 million. CFO Paris G. Reece III said in a statement the inventory writedown related mainly to five projects in California where demand was weak and required ’significantly increased sales incentive requirements.’”

“M.D.C. said it reduced its land holdings and options on land in the quarter to increase cash flow and preserve capital amid the weakness in the housing market. It owned or had options on 31,565 lots in the third quarter, down 28.2 percent from 43,987 lots in the same period last year.”

“Incentives as a percentage of average selling price doubled from 3 percent to 6 percent in the last quarter, said Reece. Demand for new homes, particularly in Colorado, has been weak, Reece said.”

“‘It’s a bit of a mystery,’ he said. ‘We have job growth in a positive way for the last couple of years. It’s a vibrant community. But we’ve seen listings rise, and foreclosures on a per-capita basis are the highest in the country.’”

“The company decreased its land investment by $100 million during the third quarter and reduced the number of lots it controls by 25 percent. But as more homebuilders struggle, land may become available at sharply reduced prices.”

The September numbers are out for existing home sales. “Sales of existing homes fell for a sixth straight month in September and the median sales price dropped on an annual basis by the largest amount on record, further documenting a lukewarm housing market.”

“The National Association of Realtors reported that sales of previously owned homes fell by 1.9 percent in September to a seasonally adjusted sales pace of 6.18 million units, the slowest sales rate since January 2004.”

“The median price of a single-family home fell to $219,800 last month, a drop of 2.5 percent from the price in September 2005. That was the biggest year-over-year price decline in records going back nearly four decades. Sales of condominiums fell by 3.2 percent. Condominium prices fell by 3.2 percent”

“‘The worst is behind us as far as a market correction — this is likely the trough for sales,’ said David Lereah, the Realtors’ chief economist. ‘When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market.’”

“Regionally, existing home sales in the South were 9.0 percent below September 2005. The median price in the South was $184,000, down 1.6 percent from a year ago. Existing-home sales in the Midwest were 13.7 percent lower than a year ago. The median price in the Midwest was $169,000, which is 2.3 percent below September 2005.”

“In the West, existing-home sales were 23.8 percent lower than a year earlier. The median price in the West was $332,000, down 4.3 percent from September 2005. Existing-home sales in the Northeast were 13.4 percent below September 2005. The median existing-home price in the Northeast was $259,000, down 5.1 percent from a year earlier.”

“Compared with a year earlier, sales were down 14.2 percent, the Realtors group said. Home resales have fallen every month since March. The number of homes for sale fell 2.4 percent from August to 3.75 million, remaining at a 7.3 months’ supply. ‘There’s a stabilization in the inventory-to- sales ratio, but at a very high level,’ said Ed McKelvey, senior U.S. economist with Goldman Sachs Group Inc.”

“Home sellers have been reluctant to lower prices, while buyers wait for better deals, a standoff that leaves homes sitting on the market longer, even as mortgage rates fall.”

“‘As long as you’ve got interest rates where they are now, which is near an all-time low, interest rates can’t be blamed for the real estate market being soft,’ Toll Brothers Inc. CEO Robert Toll said. ‘Right now the real estate market is relatively low, generally speaking.’”

The Milwaukee Journal Sentinel. “U.S. house prices won’t keep pace with inflation through 2008, industry economist Douglas G. Duncan predicted Tuesday.The pace he expects, 1% this year and next, would be the slowest since the first quarter of 1995, according to the Office of Federal Housing Enterprise Oversight.”

“The country is experiencing the recoil that follows a boom, Duncan said at a news conference during the 93rd Annual Mortgage Bankers Association Convention in Chicago. Housing sales hit record peaks, with enormous price gains, in the last five years, he said. Now it’s over.”

“‘The market is normalizing. The last couple years were above what we expected,’ said Duncan, the Washington, D.C.-based trade group’s chief economist and senior vice president. ‘This may lead to more of a down bounce than we expected.’”

“Home price gains have surpassed inflation nearly every year since the Great Depression, industry experts say. That won’t happen again until at least 2009, according to Duncan’s downgraded forecast. Both supply and demand reversed course, and so did overall market conditions, the economist said.”

“Home sellers flooded the market this year just as many potential buyers stopped shopping. The reversal likely began last fall, but was disguised because sellers made concessions not in house prices but with incentives, he said.”

“The nation’s inventory of ‘for sale’ homes is higher now than it has been in many years, Duncan said. ‘It’s clearly a buyers’ market, and lots of buyers are sitting on the sidelines waiting’ to see if seller desperation will get them a better deal, the economist said.”

“Better deals may be in the offing on some new homes. ‘Builder inventory is costly to carry,’ Duncan said.”

“Market psychology is different in the resale market, where emotions often reign and homeowners may pull their houses out of the market rather than mark prices down just to move on, he said. ‘These people haven’t yet decided what to do,’ Duncan said. ‘That will play out in the next 12 to 18 months. That puts us at mid-2007 before we might be able to say, ‘We passed the trough,’ on the nation’s housing slump.”

The Herald Tribune reports from Florida. “The Sarasota Association of Realtors wants to secede from the Sarasota-Bradenton Metropolitan Area, at least as far as real estate statistics are concerned. In a first-ever move, the group released Sarasota housing data in advance of the monthly release of data from the Florida Association of Realtors, scheduled for today.”

“On a stand-alone basis, Sarasota’s results are better than its immediate neighbors, and that’s the point of the group’s analysis, said Kathy Roberts, chief executive of the Sarasota Association of Realtors. ‘We’re trying to give our local slant,’ she said. ‘We want to differentiate ourselves.’”

“The group said that total sales have returned to the ‘more normal figures of 2002 and prior years.’ Using only Sarasota Multiple Listing Service data, the run-up in both sales and prices experienced in 2003, 2004 and 2005 is evident.”

“Despite the Realtors’ contention, though, 2006 is still slower so far even than 2002 with 5,158 total home and condominium sales, a 16.8 percent decline from that year. The 2002 market median price was $182,000 for homes and condos. Today’s median price is $328,000, still an appreciation of 80 percent in four years.”

“‘The number of properties sold in higher price ranges has buoyed the median price in our marketplace, both for single family homes and condominiums,’ said Felix Power, the association’s president. ‘Though price-reduced signs are evident in almost every neighborhood, prices are adjusting to the realities of the market which no longer reflects the extraordinary price escalation of the last three years,’ Power said.”

“Single-family home sales from Jan. 1 to Sept. 30 were 3,510, down nearly 37 percent from the 2005 total of 5,562. Condos also dropped in 2006 to 1,648, from the 2,898 last year, a decline of 43 percent.”

“The speculative ‘overhang’ has yet to be bled from the market, said John Tuccillo, a former National Association of Realtors chief economist and consultant with offices in Sarasota. That accounts for the huge inventory increase from the earlier years and the slower pace of absorption.”

From Myrtle Beach Online in South Carolina. “Myrtle Beach’s strong job growth makes it less vulnerable to a housing bubble despite 60 percent appreciation in the past five years, a new report says. ‘There has been home price appreciation but because employment gains have been so strong in the region, it provides enough of an offset that if there was a home price decline, it’s likely consumers would be able to weather it,’ said Ivana Rupcic, economist for RBC Financial Group.”

“The report doesn’t specify what kind of jobs are growing on the Strand, but, statewide, the largest increase has been in construction - which is likely the case in Myrtle Beach, said Tom Maeser, president of the Fortune Academy of Real Estate. ‘It’s a dilemma if your high job growth is due to construction [jobs],’ Maeser said.”

From the State. “Home sales in the Upstate started to slip in September, mirroring a trend along the coast and in most of the nation, according to the South Carolina Association of Realtors. Five of six Upstate regions showed declines for September, compared to a year ago.”

“The Piedmont region, which includes Rock Hill, York, Lancaster and Chester counties, showed the sharpest drop, at 34.5 percent.”

“But Butch Brindel, CEO of the Piedmont Regional Association of Realtors, said the figure is an anomaly and home sales are strong in the region near rapidly growing Charlotte. ‘Everybody’s talking about the housing bubble bursting,’ he said. ‘The bubble’s not bursting here.’”

“Nick Kremydas, head of the state Realtors group, said one reason for the declining numbers could be that investors, who have been pulling out along the coast, are now leaving other areas of the state, such as lake resort communities in some of the Upstate regions. ‘The short-term investors have left the state,’ he said. ‘We can say that now statewide.’”